Global markets were higher on Friday with shares on Wall Street hitting a fresh all time high.
Investor sentiment was buoyed by renewed hope for a trade truce between the US and China, and as better than expected US job numbers for October affirmed the Federal Reserve's generally positive view of the world's largest economy. A still solid trend of jobs added at this stage of the economic cycle combined with the unemployment rate at 3.6% supported US economic bulls as we move towards the end of the year.
Stock in Focus: Macquarie (MQG:ASX)
Shares in Macquarie were flat as it posted a sound result for the first half of the 2019 financial year, where it increased its net profit after tax by +11% to A$1,457m for the 2019 financial year. Macquarie maintained previous guidance for their 2020 financial year that net profit after tax will be “slightly down” on 2019 – with the market expecting a guidance upgrade.
2019 was an exceptionally strong result thanks to a stellar second half performance from its commodities and global markets divisions, helping deliver a full year net profit after tax of A$2,982m (up +17% from the previous year) which Macquarie believe will be difficult to replicate again in 2020. The first half result was driven by a strong performance from the annuity style businesses (particularly Macquarie Asset Management) generating 60% of group profit and provided a combined net profit contribution of A$1,717m, which was up +15% from the same corresponding period last year – and up +11% from the previous half (2019 second half). Offsetting weak profit contributions from Macquarie Capital business which suffered from lower activity compared to a significantly higher level of activity in the previous year, and rising costs associated with increased headcount and investment into technology.
With growing concerns following the developing headwinds facing the mortgage market in Australia (and New Zealand) Macquarie offers a more diversified income stream over the big 4 Aussie Banks, both regionally (with 66% of income earned globally) and varied product offering – with a balance between stable annuity style earnings as well as its volatile capital markets facing businesses. For this reason, we believe Macquarie offers a more attractive risk/return proposition relative to the big 4 Aussie banks who are highly exposed to the headwinds facing the mortgage market, in our view.
We currently have a BUY (High-Risk) rating on MQG.
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Australia & New Zealand Market Movers
The Australian market was a touch higher on Friday (+0.09%) despite losses by the heavyweight financial sector. ANZ led the big four banks lower in a repeat of Thursday’s trading after broker downgrades following disappointing quarterly earnings.
In the health care sector, both CSL and sleep apnea treatment company ResMed hit all-time highs, and Avita Medical gained 8% after reporting quarterly revenue had risen 165% to $7.9 million on increased sales of its spray-on skin therapy system. Qantas was up despite pulling three Boeing 737 planes from service after finding hairline cracks, while Virgin Australia was flat after raising $150 million to help fund its attempt to bring its Velocity frequent flyer program under its full control. Building materials company CSR jumped after more than doubling its first-half profit to $68.8 million despite weakness across the construction market.
The New Zealand market was lower on Friday (-0.24%) as investors continued to assess the impact of Rio Tinto’s threat to close the Tiwai Point smelter, weighing on the electricity generators. However, property stocks had a strong day, led by Vital Healthcare Property Trust. Sky TV declined after thepay-TV operator revealed more detail about the 5% stake it gave NZ Rugby in order to secure broadcasting rights. Sky issued 21.8 million shares at 92 cents per share, valuing the stake at $20.07 million, with a minimum two-year holding period.
3 Things Markets Will be Watching this Week
- US earnings season for the 3rd quarter continues this week.
- The Reserve Bank of Australia makes an interest rate decision on Tuesday.
- A string of China data points are set to be released at the start of the week.
Have a Great Day,